Do smaller international money transfers have lower fees?

14 April 2016: If you want to send an international money transfer from Australia to anywhere else around the world, you will have to pay a transfer fee. While fees on large transfers ($10,000 or more) are waived by some providers, most global remittances attract a fee that could be anywhere from a few dollars up to $75.

If you only need to send a small transfer amount overseas, such as $100, you might expect that your transaction would attract a smaller fee than someone sending a much larger amount, such as $1,000. Unfortunately, that’s not always the case.

How much does it cost to send an international money transfer?

The cost of an international money transfer will vary depending on the company you choose to handle the transaction. There are two factors that influence the cost of your transaction: the exchange rate that applies and the transfer fee you are charged.

Exchange rates offered by transfer providers fluctuate each day in line with changes in global currency markets. Some transfer providers also add a higher margin on top of the currency they sell, resulting in a more expensive transaction for the consumer.

In terms of transfer fees, companies may charge one of the following types of fees:

A flat fee on all transfers no matter the amount.

A tiered fee structure, for example $5 for transactions under $500, $10 for transactions under $1,000 and so on.

A fee calculated as a percentage of the transfer amount.

Some companies will also waive fees on large transfers, for example if you send $10,000 or more.

As the points above demonstrate, whether or not a smaller money transfer will attract lower fees will depend on the provider you select.

Clayton lives in Sydney and he wants to send two transfers to relatives in the UK. One transfer of $150 will go to his brother, who is on a backpacking holiday and needs a little bit of cash to help him until he finds temporary work. The second transfer is $5,000 and will go to Clayton’s aunt Patricia in Manchester to pay off an old loan.

In an effort to find the most affordable transfer method, Clayton decides to compare three options for each transaction: a cash pickup transfer company, an online money transfer company, and PayPal. First, let’s take a look at the fees involved with the $150 transfer.

Cash pickup transfer company

PayPal

Online money transfer company

Transfer amount

$150

$150

$150

Transfer fee

$20 AUD

0.75 GBP

$3

As you can see, the cheapest fee for this transaction is charged by PayPal (in GBP). However, this fee applies if your transaction is funded from your bank account or PayPal balance, and increases substantially if you pay using your credit card.

Now we can take a look at the fees that apply to the larger transfer:

Cash pickup transfer company

PayPal

Online money transfer company

Transfer amount

$5,000

$5,000

$5,000

Transfer fee

$180 AUD

25 GBPOr 195.20 GBP if funded by credit card

$0

When sending this larger amount, the online money transfer company waives its transfer fee, making it easily the most affordable option. However, it’s also worth pointing out that you’ll need to take the exchange rate into account when calculating the overall cost of a transaction.

Remittances and developing countries

Figures from the World Bank Group reveal that in 2015, international migrants sent more than an estimated $601 billion to their families in their home countries. Of that amount, $441 billion was sent to developing countries. When you compare that amount to the $135 billion spent on foreign aid by the world’s wealthiest countries the previous year, the size and power of the global remittance industry is apparent.

By working overseas and sending money back home to their families in developing countries, international migrants offer much-needed support to some of the poorest people in the world. Dilip Ratha, co-author of the World Bank Group’s Migration and Remittances Factbook 2016, summed up the financial effect international money transfers can have:

At more than three times the size of development aid, international migrants’ remittances provide a lifeline for millions of households in developing countries. In addition, migrants hold more than $500 billion in annual savings. Together, remittances and migrant savings offer a substantial source of financing for development projects that can improve lives and livelihoods in developing countries”, he said.

Remittances offer a crucial form of support to countries torn apart by conflict or natural disasters. With this in mind, there have been calls from some quarters for international money transfer providers to remove hefty transfer fees for poor people trying to send money home. Some such arrangements have been set up in certain parts of the world – for example, the US Federal Reserve Bank allows money transfer businesses to send money to Mexico for just 67 cents per transaction – but they are few and far between.

Consider how you can place a transfer – online, over the phone or by visiting a branch – and how your recipient will be able to access the funds you send.

Consider when your recipient needs the funds

Compare transfer times to work out how quickly the funds can be accessed by your loved ones. If a company offers an urgent transfer option, will you need to pay more for this service?

Look for a service that provides 24/7 customer service

If you ever have a question or a problem with a transaction, will you easily be able to contact the company’s customer service team to get the answers and support you need?

The best way to ensure that you save money on international transfers is to compare exchange rates, fees and transfer methods between providers. This will help you find the best value for money and guarantee that more of the money you send makes it into the pockets of your loved

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